A. The AR(1) model for the civilian unemployment rate, UER t = 0.0405 0.4674UERt 1, was

Question:

A. The AR(1) model for the civilian unemployment rate, ΔUER t = −0.0405 − 0.4674ΔUERt −1, was developed with five years of data. What would be the drawback to using the AR(1) model to predict changes in the civilian unemployment rate 12 months or more ahead, as compared with one month ahead?
B. For purposes of estimating a predictive equation, what would be the drawback to using 30 years of civilian unemployment data rather than only five years?